One of the crucial and lengthy processes in any merger and acquisition deal is financial due diligence. This process is something that the buyer conducts to confirm the accuracy of the seller’s claims. Generally, any potential M&A deal involves several types of due diligence processes.
An acquiring firm undertakes an extensive procedure to assess the target company’s business and assets thoroughly. With a financial due diligence checklist, you can assess their capabilities and financial performance. There are numerous angles to due diligence analyses.
Corporate finance due diligence services can be outsourced to understand which type of process is suitable for your company. However, it would help if you first understood the main due diligence processes like the following:
It is the aspect of due diligence that involves verifying admin-related items such as occupancy rate, facilities, and others. The idea of it is to verify the various facilities owned or occupied by the seller. This process is undertaken to determine whether all operational costs are captured in the financial records or not.
Administrative due diligence also offers a simplified picture of the kind of operational expenditures you will incur if you plan to pursue the expansion.
An important type of due diligence in financial due diligence. With financial due diligence processes, you can check whether the financials showcased in the Confidentiality Information Memorandum are accurate or not.
The financial due diligence aims to provide a thorough understanding of all the company’s financials. This corporate finance due diligence includes audited financial statements for the last three years, recent unaudited financial statements, companies’ projections, and others. The basis of such projections is the capital expenditure plan, schedule inventory, debtors, and creditors.
The financial due diligence process also involves analyzing major customer accounts, fixed and variable cost analysis, evaluating profit margins, and examining internal control procedures. Besides, financial due diligence analyses the company’s order book and sales pipelines to create better and more accurate projections.
Like many acquirers, if you too have a separate section of financial analysis focused on the target company’s debt situation, it can be a challenging task. You will need to evaluate short-term and long-term debt, applicable interest rates, and the company’s ability to service its outstanding debt and secure more finances. It will also include a comprehensive examination and evaluation of the company’s capital structure.
You can opt for financial due diligence services to help you with a curated financial due diligence checklist.
Another type of due diligence apart from financial due diligence conducted is asset due diligence. The reports typically include a detailed schedule of fixed assets and their locations. And all lease agreements for equipment, a schedule of sales and purchases of major capital equipment during the last three to five years, real estate deeds, mortgages, and use permits.
Suppose you outsource financial due diligence services, sometimes with financial due diligence. In that case, you can also avail of the human resources due to diligence services. Being extensive, it includes:
Like financial due diligence is extremely vital for your company’s growth, environmental due diligence is essential for your company’s reputation. If your company violates any major rule, local authorities can exercise their right to penalize it and maybe shut it down operationally. Thus, this makes environmental audits for each property owned or leased by your company one of the key types of due diligence.
The list of environmental permits and licenses and validation of the same should be reviewed carefully. It should be noted that your company’s disposal methods are in sync with current regulations and guidelines.
Financial and tax due diligence is in regard to the tax liability, and it mostly includes a review of all taxes your company is required to pay. This financial due diligence process comprises of accurate calculation with no intention of under-reporting of taxes. The financial due diligence services verify the status of any tax-related case pending with the tax authorities as part of their financial due diligence checklist.
The financial and tax due diligence involves documentation of tax compliance, and potential issues typically include verification and review of the following:
Mostly all companies have intellectual property assets that they can use to monetize their business. Such intangible assets are something that differentiates their products and services from their competitors. It may often comprise some of your company’s most valuable assets. These are some factors that need to be looked at in a due diligence review are:
While these were some of the different due diligence types, you should know that financial due diligence is essential, as is tax diligence. At TRC Corporate Consulting, our professionals can offer detailed reports on the company’s financial stability. It will allow you to have more leverage over the selling process and the pace of purchases, which in turn will help you secure a better price for the business. You can contact us for your financial due diligence requirements and a thorough understanding of the financial due diligence process!